Why Facebook (Probably) Isn’t In Danger After Losing $119 Billion In One Day… And How To Take Advantage Of This

Thursday, July 26, 2018…

A day that has gone down in history.

That’s the day of the single largest one day stock drop for any company in US history.

That’s the day Facebook lost $119 billion in market value.

To put that into perspective, at the time of this writing, that’s more than enough to bankrupt Ford Motor Company three times over.

So, why such extreme investor wrath?

As far as I can tell, there are three main reasons.

1. Legal Changes In Europe

On May 25, 2018 the European Union started enforcing a new law, called the General Data Protection Regulation.

Without getting too technical with the details, I’ll just say that it deals with protecting consumer privacy in a way that makes things more complicated for digital marketers and advertisers… or, in other words, jerks like me who want to access the sensitive, intimate details of your life so that we can exploit you for personal gain. I promise it’s (probably) nothing personal.

Contrary to popular belief, Facebook users are not customers. They are the product.

Facebook sells the attention of its users to its real customer: Me… as well as about a bazillion other less charming and less handsome digital marketers and advertisers.

With legal issues getting more complicated, many digital advertisers likely put the brakes on some of their advertising campaigns… particularly those campaigns that market to European consumers.

As a result, Facebook is getting less revenue from these advertisers. In many cases it’s probably a temporary issue while advertisers work to adapt to current circumstances. But, it’s still not something that investors enjoy seeing.

2. Bad PR

Another factor that’s likely contributing to Facebook’s stock market woes is the negative PR they’ve gotten throughout the past several months.

Part of the negative press that they’ve gotten results from the exposure of their mishandling of user privacy data.

Another reason for the bad publicity is the frequently repeated accusation of politically motivated censorship.

The combination of these two scandals has been more than enough to convince a certain amount of people to put Facebook on their naughty list. These offended users might be logging on less frequently or may have even decided to completely boycott the tech giant, leaving advertisers with slightly fewer users to monetize. This in turn helps the company end up on investors’ naughty lists.

3. Stunted Growth

We rarely see companies enjoy such impressively rapid growth throughout so many years, as we’ve seen during the past decade or so with Facebook.

The result: Investors are a bit spoiled.

They don’t want to hear that Facebook might finally be in a more mature phase where such radical growth is decreasingly likely.

The number of Facebook users is already in the billions. There are, after all, only so many billions of people on the planet that Facebook can recruit as new users. And of course, this slower growth is likely exacerbated by decreased usage among certain groups of people, as mentioned in my previous point.

Instead of accepting and enjoying the more moderate (though still very healthy) growth that Facebook may expect in the future, it seems that many investors are off in search of the latest, greatest unicorn venture.

(Side Note: Interested in talking with me to see how I might be able to help you build a stronger brand? Whether you’re trying to build a stronger personal brand so that you can progress in your career, or you’re hoping to build a popular brand for your company, I might be able to help you.

If that sounds interesting, then go ahead and click below to send me a Facebook message:

m.me/SethCoyne

Or, feel free to send me an email at seth.e.coyne@gmail.com)

The Perfect Storm Or False Alarm?

As I understand it, the term “perfect storm” has been used to describe a natural phenomenon during which two storms (or other types of severe meteorological conditions) happen to experience intersecting paths. The resulting double-storm could then be called a perfect storm. This is part of what caused such devastation some years ago during Hurricane Sandy. According to the aforementioned definition, Sandy was a perfect storm.

So, is Facebook in danger from the intersection of these three problems? Is it in danger from its own “perfect storm”?

Honestly, I doubt it… for one very simple reason: They have no viable competitor.

Sure, Snapchat has certainly gained a certain amount of use. And let’s not forget the politician’s favorite: Twitter. But, when compared to Facebook’s popularity, they kind of look like a high school varsity star basketball player…

… taking on LeBron James.

They’re good, but not that good.

Of course, there’s also LinkedIn. But, given the fact that they provide a very different service, they don’t really present any serious or direct competition.

At this point, I would say that Facebook’s most serious competitor is Instagram.

Of course, Facebook owns Instagram. So, I’m guessing they probably don’t feel particularly threatened by its surging popularity.

(Note: There actually is one group that could potentially become a very real danger to Facebook: Government Anti-trust Regulators. The US federal government could theoretically brand Facebook as an illegal monopoly, which could present severe consequences. I don’t necessarily expect that to happen anytime soon. But it’s a possibility that Facebook can’t completely ignore. Either way, it’s a topic for another day.)

The Reason For Facebook’s Near-Invincibility

Given all the negative publicity, why doesn’t another company rise up and knock Facebook off its throne?

The reason can be summed up in two words: Network Effect

The popular theory states that the value of a network can be measured by the number of its members squared.

According to this logic, a network that has 10 members is not twice as valuable as a network with 5 members. It’s 4 times as valuable.

Value measurement of network with 5 members = 5×5 = 25

Value measurement of network with 10 members = 10×10 = 100

100÷25 = 4

Facebook has over 2 billion users. Each new user makes the network that much more valuable to every other user, because there are now even more people to interact with. (Do you know what 2 billion squared is? It’s a lot.)

Even if another social network were to come out with a much better app, guess how valuable it would be with zero users?

It’s not valuable to potential users, because the value in such a network is in interacting with other users… which, at this point, are nonexistent.

And it’s certainly not valuable to advertisers, because there are no users for us to bother and exploit.

Don’t Underestimate The Power Of The Dark Side… I Mean… Network Effect… Don’t Underestimate The Power Of Network Effect… Or The Dark Side… Don’t Underestimate Either One

Facebook might be the most extreme modern example of the power that Network Effect has to almost completely immunize a business against competition. But, it’s far from the only example.

Amazon is another great example. A new startup could theoretically build a higher-quality online marketplace. But, they would have a tough time competing with Amazon.

Why is this?

From the perspective of buyers:

“Seeing as how Amazon has all the sellers, why would I waste my time checking out this new website, even if it does have things like faster loading times and an easier checkout process? In order to get the best prices, I’m going to have to compare this new website to Amazon anyway. And if I just stick with Amazon, I can take advantage of the free 2-day shipping that I’m already paying for with my Amazon Prime membership.”

From the perspective of sellers:

“It doesn’t matter how convenient this new website is or how small the portion of my profits that they retain. Amazon has all the buyers. Trying to sell on this new website isn’t worth my time.”

YouTube is another example of the same thing. Content creators are drawn to YouTube over other video sharing sites, because YouTube has more viewers. Viewers are drawn to YouTube because it has more videos.

It’s basically a Catch 22. As a result, brands like Facebook, Amazon and YouTube are incredibly difficult to compete with. Unlike new, competing brands, these established market leaders can take advantage of the networks of people that they have built up.

They aren’t just selling products and services. They’re selling the convenience of the status quo. As a general rule, we don’t like change. We’re far too content (read: lazy) for anything like that.

(Side Note: Interested in talking with me to see how I might be able to help you build a stronger brand? Whether you’re trying to build a stronger personal brand so that you can progress in your career, or you’re hoping to build a popular brand for your company, I might be able to help you.

If that sounds interesting, then go ahead and click below to send me a Facebook message:

m.me/SethCoyne

Or, feel free to send me an email at seth.e.coyne@gmail.com)

What Can Network Effect Do For Me?

Building a protective layer around your business by taking advantage of the power of Network Effect can make you very difficult to compete with. But, doing so is far easier said than done.

If you’re up for a challenge, consider taking some time to brainstorm with colleagues. Try to think of what type of inconvenience (if any) your customers might experience when they move to a competitor and stop buying from you.

Maybe they have to go through the hassle of filling out new paperwork?

Maybe they have to drive to a more remote location?

Maybe they have to accept inferior customer service?

Is there a way that you can make that barrier of inconvenience even more inconvenient by making your products, services and/or customer experience noticeably more convenient and comfortable?

Like I said, much easier said than done. Maybe there’s nothing you can realistically do. But, it might at least be worth taking a few hours to consider.

An Easier Strategy: Just Be Nice… Like REALLY Nice

Luckily, taking advantage of network effect on an individual level is much easier then on the company level.

Even more lucky: If you own or lead a business, then surrounding yourself with a strong professional network will not just benefit you on an individual level, but that value will probably carry over to your business.

Networking is a popular pastime among society’s more successful businessmen and women. I’m talking about things like going to business events, visiting conferences, showing up at fundraisers, scheduling business lunches, etc.

In doing so, your purpose should be to build strong relationships and allies by being friendly, helpful and generous.

To paraphrase President John F. Kennedy, “Don’t ask what your friends can do for you. Ask what you can do for your friends.”

That doesn’t mean that you should become a doormat and let people take advantage of you. Don’t be afraid to be assertive and ask for help when you need it.

The point is, if you spend enough time helping others achieve their goals, then chances are there will be plenty of people who are ready and willing to help you succeed in achieving your goals.

You may not become as invincible as Facebook. But, a large network of ambitious, loyal friends who are happy to help you is a valuable asset. Such an asset can help you do things like get a better job, find new clients, get media exposure for your brand and find more enjoyment in your professional endeavors.

Conclusion

In the end, Facebook is about as close as it gets to immune against competition.

That doesn’t mean it’s impossible for them to fall. But, it will take one heck of an effort to defeat them.

(On the other hand, if they continue to anger users, investors and/or government regulators with further scandals, then who knows what might happen?)

You may not be able to build up a network of 2 billion people, like Facebook can. But, pursuing the power of Network Effect is a pursuit worth pursuing… pursuantly.

A strong network is an asset that can benefit your life, your career and your business in many ways.

Investing time and effort in seeking ways to take advantage of the power of Network Effect might pay off much more than you think. Give it a try!

PS. Interested in talking with me to see how I might be able to help you build a stronger brand? Whether you’re trying to build a stronger personal brand so that you can progress in your career, or you’re hoping to build a popular brand for your company, I might be able to help you.

And who knows? Together we might manage to save the whales, take over the world and establish the most benevolent and productive dictatorship in history. Sound interesting?

Either way, go ahead and click below to send me a Facebook message:

m.me/SethCoyne

Or, feel free to send me an email at seth.e.coyne@gmail.com

I look forward to hearing from you! Let the revolution begin! Just kidding… well… maybe. 😉

PPS. In case anyone was wondering, there’s no need to get offended. I was totally joking about the whole dictatorship thing. I’m completely not OK with tyranny. So… that’s what happened here.

About The Author

Seth Coyne

Seth Coyne prefers to be addressed as Jedi Master Seth. He is the founder of Rapid Company Growth. He’s also a surprisingly handsome business advisor. Feel free to connect with him via LinkedIn or Facebook Messenger.

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